Thursday, 13 March 2014

New PPIC Report on the Cost of Water From the Tunnels

After a quick initial read, my impression of the new PPIC report, Paying For Water, is mostly positive. It provides a good overview of funding options and challenges in key areas.

Of course, I am always interested in what the PPIC has to say about the Delta tunnels. There is only a brief discussion of the tunnels on page 26-27, and it correctly focuses on the major challenge of agricultural users affording the tunnels without endorsing or rejecting the tunnel proposal. However, I do not believe it accurately characterizes the cost of water through the tunnels, and it incorrectly attributes a per acre foot cost estimate to Dr. Rodney Smith (of Hydrowonk fame).

BDCP puts the implicit additional water supply cost of new conveyance, based on current cost estimates, at $302 to $408 per acre-foot at the Delta.39 Additional costs would accrue for transmission, treatment (for urban users), and distribution, which could add as much as several hundred dollars to the price paid by urban water users. Others that have examined BDCP put the likely cost much higher, with estimates ranging from $500 to $1,000 per acre-foot. fn40

Footnote 40 attributes the $500-$1000 per acre-foot estimate to Dr. Smith’s blog post, but this is what Dr. Smith actually said in that blog post.

Over the past couple of weeks, I have heard about alternatives to the no BDCP scenario defined by DWR. What proves true will have a substantial impact on the cost of BDCP water. Under alternative “no tunnel” scenarios, the best case for the cost of BDCP water would be well over $1,000/AF for a non-firm water supply. There are some scenarios where the BDCP investment may yield even a lower water supply. In those circumstances, the BDCP investment in tunnels would become the “bridge to nowhere” in waterworld.

I don’t know how Dr. Smith’s very clear and bold statement can be interpreted as $500-$1000 af. I have joined Dr. Smith in estimating the cost of BDCP water as well over $1,000 af., and would be over $2,000af in very plausible scenarios.

The PPIC’s brief discussion of the tunnels’ cost continues…

Still, for most urban water users, Delta exports in this price range would remain competitive with most other new sources of supplies. In contrast, this price increase could be prohibitive for many agricultural activities. Among the many open questions is whether water users could agree to a cost-sharing formula with lower payments by agriculture, potentially in exchange for lower reliability, or to a smaller project (lowering both future exports and costs, and using the savings to develop more local supplies in urban areas).

This is a reasonable assessment if you think the costs are under $1,000 af. My take is a little different, and simply reflects my view that the costs are higher.

For urban agencies, I believe the costs are on the high-end of their current alternatives. So it is affordable but marginal investment for urban agencies if you assume a proportional cost distribution with farms. But the costs are absurd/nonsensical/crazy (I have used all these adjectives) for agriculture, and the majority of the water exported from the Delta is used by agriculture. Any attempt to shift the costs from agriculture to urban users make the tunnels a very bad investment for the urban users as well. And the PPIC’s other suggestion, that the cost shift be done in exchange for lower reliability for agricultural water supplies - has significant economic and social implications in a dry year like this - the financing plan for the tunnels could be the real “man-made” drought for the Valley.

About the Author

Ethan Jacob

Author & Editor

I am Ethan Jacob Executive Director of the Center for Business and Policy Research at the University of the Pacific, where I have a joint faculty appointment in the Eberhardt School of Business and the Public Policy Program in the McGeorge School of Law..